Costly index investing in foreign markets

Pedraza, Álvaro; Pulga, Fredy; Vasquez, Jose P.

doi:10.1016/j.finmar.2019.100509

Cited by 5 publications

(9 citation statements)

References 48 publications

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“…3 For each transaction, the dataset includes the date and time of the transaction, the transaction price, the number of shares traded, the name of the company, whether the order was a buy or sell trade, a stock identifier, and a broker ID. As noted by Pedraza et al. (2019) , who used these data to compare the performance of domestic versus foreign institutional investors in Colombia, a key aspect of the dataset, and one that is very relevant to us, is that every purchase and sell record includes a distinctive investor ID number that allows for the identification of each transaction executed on behalf of each investor throughout the sample period.…”

Section: Methodsmentioning

confidence: 99%

“…We do not know the exact portfolio that each investor has in the dataset. Therefore, and similar to Pedraza et al. (2019) , we created investor portfolios assuming a zero initial holding condition for each investor for the first date that he or she appears in the dataset.…”

Section: Methodsmentioning

confidence: 99%

“…The data include all transactions executed in a specific stock market (the Colombian Stock Exchange), comprise a relatively long period of time (between January 2, 2006 and January 29, 2016), and allow us to identify all transactions made by each individual investor in the database. Pedraza et al. (2019) have already used this database to analyze the trading behavior and performance of foreign investors with different management styles (we comment more on this paper below).…”

Section: Introductionmentioning

confidence: 99%

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The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market

Garay

Pulga

2021

Heliyon

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We analyze all stock transactions executed by the universe of individual (or retail) investors of the Colombian Stock Exchange (5,380,810 trades performed by 42,211 individual investors between 2006 and 2016). Retail investors had negative abnormal returns on a gross excess return basis that ranged between 4% and 4.4% per year (depending on whether the alpha was estimated using the CAPM, Fama-French model or Carhart model). When transaction costs are considered, the underperformance of retail investors becomes even more pronounced, and the most active traders perform worse than less active traders even on a gross excess return basis. The underperformance of retail investors can be explained by their bad timing but only prior to the bankruptcy of Interbolsa, the largest stock brokerage house in Colombia at the time (2012). Once we control for the number of trades and other variables, we find that retail investors present in the market for a longer period of time and trading more actively outperform the other investors (on both a gross and net basis).

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market

Garay

Pulga

2021

Heliyon

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“…There are several explanations for the existence of home bias in portfolio investments. These include: (i) hedging motives in frictionless financial markets, that is, real exchange rate and nontradable income risk (Stockman and Dellas, 1989;Wheatley, 2001), (ii) higher asset trade costs in foreign markets (such as transaction costs, differences in tax treatments between national and foreign assets or differences in legal frameworks), (iii) informational frictions (Brenan and Cao, 1999;Portes and Rey, 2005;Leuz et al, 2010;Pedraza et al, 2020) and (iv) behavioral biases (Bailey et al, 2011;Riff and Yagil, 2016). While disentangling the contribution of each motive on the bias towards domestic assets is difficult, it is well-known that portfolio investments in foreign markets are influenced by market development in both the source and target countries, by investor familiarity with each market as suggested by common language, bilateral trade flows, and both geographic and cultural proximity (Chan et al, 2005).…”

Section: Pension Systems and The Case For International Diversificationmentioning

confidence: 99%

Estimating the Gains from International Diversification: The Case of Pension Funds

Afanador¹,

Davis²,

Pedraza³

2021

Policy Research Working Papers

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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“…high stock market turnover and/or high market return). Pedraza et al (2020) study the trading behavior and performance of foreign Investor behavior, stock returns and CDS investors by level of active management. Using a Colombian dataset, they find that aggregate underperformance of foreign investors is attributable to passively managed foreign funds.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Investor behavior, stock returns and CDS spreads: evidence from foreign and domestic investors in Korea

Yang

Samitas

Kampouris

2020

IJMF

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PurposeThis study investigates the dynamic relationships among trading behaviors of different investor groups (foreigners, domestic institutions and domestic individuals), stock returns and sovereign CDS (Credit Default Swap) spreads in Korea.Design/methodology/approachWe employ the VAR (Vector autoregression) model to examine the dynamic relationships between CDS spread changes, stock returns and investors' behavior in the stock market.FindingsThe CDS spread change (stock return) declines (rises) in response to shocks to net foreign flows into the stock market on the same day. Foreigners buy stocks more intensely one day after an increase in the stock return, but they do not respond to CDS spread changes. Domestic individuals trade in the opposite direction of foreigners in response to shocks to both stock returns and CDS spread changes on the same day. Positive net stock purchases of domestic institutions (individuals) predict positive (negative) stock returns and negative (positive) CDS spread changes next day.Originality/valueThis study extends prior studies by examining how different investor groups' trading behaviors in the stock market are associated with not only the stock market but also a closely related market (CDS market). Prior empirical studies on the relation between the stock and CDS markets do not pay attention to possible heterogeneity in trading behavior across different types of investors in the stock market.

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Costly index investing in foreign markets

Cited by 5 publications

References 48 publications

The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market

The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market

Estimating the Gains from International Diversification: The Case of Pension Funds

Investor behavior, stock returns and CDS spreads: evidence from foreign and domestic investors in Korea

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